What Being an Advisor to 17 Companies Taught Me

by Neil Patel on September 22, 2011

I have been an advisor to seventeen companies to-date. Sixteen of these advisory positions were obtained three to five years ago, and I added one more in the last year. Over time, I dropped a decent number of these advisory positions, but before I get into that, let me first explain what being an “advisor” is.

Companies can grant stock options to individuals who aren’t employees. The stock options usually vest over a period of three or four years. In exchange for the stock, you have to help the company out with whatever they need.

If the company does well, the stock options will be worth a lot, and you will have made more money in the long run than if you just asked for cash up front for your advice. On the flip side, if the company fails, your stock is worth zero dollars, and you don’t get anything for your time.

In my case, companies would ask me for marketing help, and instead of paying me cash for my advice, they would offer me stock options. By doing this seventeen times, here is what I learned:

Cash is king

Out of all the companies I agreed to be an advisor to, three or four are failing, eight to ten are doing all right, and a few are doing extremely well. But even then, the money that I will earn from all of my stock grants will probably only make me an amount somewhere in the 7 figures. Had I charged my normal consulting fee, I would have made a lot more money.

Granted, each company wouldn’t be able to afford my consulting rates, and as a consultant I would have to put in much more time compared to being an advisor, but nonetheless I would have came ahead if I just charged a consulting fee.

Sign your advisor paperwork on time

Having stock in a startup is kind of like having stock in a public company. If each share of the company is currently worth $5.00, you don’t get the first $5.00 when you start. You only get to keep the amount above $5.00.

So, when someone wants you to be an advisor, make sure you sign your paperwork on time. If you don’t and the stock goes up, you’ll miss out on a lot of the gains.

This is the biggest mistake I made as an advisor as I didn’t sign a lot of my paperwork on time. If you add up all of the gains I missed out on because of this, they would exceed $1,000,000.

The best stock is restricted stock

Just for a moment, imagine that a company offers you to be its advisor. Let’s say that it is currently worth ten million dollars, and it is offering you stock options for 1% of the company. Let’s say, four years from now, the company ends up being sold for twenty million dollars.

How much do you make as a 1% owner?

If you said $200,000, you’re wrong. You actually only get $100,000 because the company was already worth ten million dollars when you started. You technically only get the difference (assuming the company has no other financial obligations).

On the other hand, if you owned restricted stock, you would make $200,000 because restricted stock starts at the value of $0 even though the company is worth more than $0.

If you get restricted stock, get compensated for the taxes you incur

When someone gives you restricted stock, you’re going to get taxed by the government. If you are in a 30% tax bracket and someone issues you 1% in restricted stock when the company is already worth $10,000,000, the government will tax you on the $100,000 in restricted stock you are given from the company. This means you owe the government $30,000.

In this scenario, I would ask the company to cover the taxes I incur on the $100,000 plus the taxes I also incur on the cash that they are giving me to pay for the taxes.

Also, if you get restricted stock, you want to file an 83(b) election so that if the stock increases in value each year, you won’t have to pay taxes on the gains until you sell your shares.

Don’t go for shares, go for value

If someone offers you an advisor position in his or her company, don’t just accept the offer right away. Even if you are 100% confident the company is going to be a billion dollar company, it doesn’t mean you’ll make money from it.

You have to ask the right questions to make sure it’s worth it to you. Some of the questions I ask are:

How much money do you think your company will be worth in the next 3 to 5 years?

Those are just some of the questions you should be asking before you accept any advisor roles. It will give you a decent understanding of how much money you can potentially make if the company does well.

If it isn’t worth it, you can either ask for more shares, or you can just decline the offer.

Being an advisor isn’t sexy

Not only is being an advisor time consuming, but it also involves a lot of hard work. From unproductive meetings, to countless hours of your time, to even spending your own money on travel expenses, being an advisor isn’t sexy.

And if you don’t do a good enough job and the company doesn’t succeed, you walk away with zip. It’s an all or nothing game, so make sure you are doing everything in your power to help the company succeed. If you aren’t willing to do this, don’t waste your time being an advisor to a company.

Plus, if you don’t put in enough time and effort, the company can technically cut you off. Not only will you lose any of the shares that didn’t vest, but this will also tarnish your name.

Before you start any advisory engagement, you should sit down with the company, and both parties should outline what’s expected of each other. From who is going to be responsible for what and how much time you are going to be giving the company, everything should be hashed out before you start.

Conclusion

Learn from my mistakes. If you are going to be an advisor to a company, make sure it is worth your while. If you do accept, sign your paperwork on time, and do whatever is in your power to help the company succeed.

After holding 17 advisory positions, I’ve learned that I just don’t have the time to help very many companies these days as I need to focus on my own startup. For this reason, I dropped most of my advisory positions, except for the handful that I think will pay off.

Every once in a while, I do take on advisory positions, but it’s usually with a company that is owned by a friend. I don’t care what they are offering me or if it is worth my while because I don’t mind helping out friends for free.

When outside companies hit me up, I have a rule of thumb: if I can’t get restricted stock and the company isn’t doing at least seven figures in revenue, I don’t waste my time being an advisor. In addition to that, I only work with serial entrepreneurs who have already had some success under their belts.

Now that you know the ins and outs of being an advisor, do you want to be one for other companies? Or, better yet, do you want people to be advisors to your company?

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Comments

When we start projects with our friends, most of the time we do not sign any agreement with them and keep everything on air and on understanding , when money start coming it make a lots of misunderstanding. This is it always advised do your paperwork first.

I never leave anything to chance. You can’t ever be sure how another person may interpret an agreement if it is not down in detailed writing. If you allow business to be left to a mutual agreement, things could go wrong because everyones’ perception is different.

Great advice Neil, thanks for sharing. I’ve been on both sides of that table and you’re right, it’s not sexy I like the rules of thumb you came up with. Remembering to stick to those and not get too caught up in an idea that’s being pitched will save people from wasting time and losing money.

Neil,
just noticed that subscribing comments via email doesn’t work in here. Though I opted-in when leaving my comment above, haven’t got follow-up emails. Besides, while clicking on “Manage your subscriptions” link I get the message “You may not access this page without a valid key.”

Yep, thank you. Companies sometimes don’t appreciate the value of what you do. Though if you regularly show them what you bring to the table, it will not only show them how beneficial your business is to them, but also keep you on tract making work a little easier. Happy to hear I could show you something new.

That is true, and sometimes it will happen. You have to take the good with the bad and keep doing your best and moving forward. If you are completely being taken for granted then maybe you should try and find something else to move on to.

I do agree passion is involved to a large extent and people don’t always do it for money, similar to how I help out friends no matter what compensation I get. But at the end of the day most people want to be compensated for their time (whether it is money or shares).

Another great post Neil. Isnt it a benefit to you though that some of these companies didnt pay you?

Had the 3-4 failed companies paid you your full consultancy fees, they may not have been too happy which may not have done you much good? The way you worked with these meant that it would be hard to have any unhappy customers?

I guess also there is an argument that the low 7 figures could have been much higher 7 figures, had you spent more time with them (as you say you spent less time than you would have had you been paid)?

I guess it did. Nope They probably wouldn’t have been very happy. It is possible the numbers could have been higher, if I had spent more time with them Everything worked out in the long run so all I can really do is keep in mind what I learned from the mistakes I made.

If you charged them for link building, wouldn’t you make some type of referral fee or commission from the link building company? Which could turn into a passive income if the company signed up for a X amount of links per period through your link building company.

Hey Neil,
I would like to say that I feel what you are saying but I am still in my start-up phase however as I become more successful I will definitely have to refer back to this.
Quite frankly this is one of the more complicated of your articles, again thanks a lot.
David

Sounds like a much more advanced level of the common situation that we low-life tech “consultants” deal with, i.e.: “I have a great idea for the next eBay/Facebook/Google/etc. but no funds yet, can you help me build the site in exchange for future profits?”

Nice to know that even experienced business people on your level deal with similar situations, although I’m guessing some of your “advising” was for friends or family and you just wanted to help out?

Great points Neil and thanks for sharing. These projects do take a good amount of time so handling even 10 at the same time must have been a major drag on your time.

Re. restricted stock if a company did this as you recommend it would actually cost them 160% of what the cost would be. 100% for the actual stock and 30% appr. on the grant and on the exercise. Something to keep in mind from the company side…

You are so productive and I guesss its because your business model is based on SAAS on simple to understand products for the customers., as opposed to a service based business line where most of the time is used up in consulting and client face time

Have been reading your blog and your advice and insights have helped shape some of my decisions.

For the similar reasons I stopped charging fees based on result/success. You never know what advise other people take and how they transform your experience, your suggestion into business success on their side.
And remember the old Roman proverb: Clara pacta, boni amici.

So was ready to say “where do I sign up?” until I got to the “Being an Advisor Isn’t Sexy.”

That’s a joke.

What I like about stock options is you are paid for performance. You’re performance. So the more you can pour into a company, hopefully the better off it will do, which will make you more money in the end.

Of course, being marketing advisor is just one part of many facets that make a company successful, so a lot of it is out of your control. What do you do when you recognize a co. is going to fail for something out of your control? Nothing?

Being an adviser is certainly not that sexy. I have yet to be offered an advisory position for a company on a compensation basis, however like Neil, I like to help friends first and other entrepreneurs second. You never know when it will come back to you. You also have to be careful about what you say as an adviser. If you are a lawyer, you are accountable for the legal advice you give people, even if you are not representing them professionally. Sometimes it seems easy to give simple answers to what seem to be simple questions (KISS), but nowadays you really have to cover all grounds. Things are changing so quickly now and what maybe applicable to one company or industry may not be applicable to another.

The good parts about being an adviser or on a Board are that you get to be a part of a business that expands your experience. My uncle lives in Sydney and was in banking up until he was in his late 20s. Then he decided to get out and do his own financial consulting company. He did ok for a while, but he got his big break as an adviser for a small vineyard that was starting up (Brokenwood vineyards). He will tell you to never get into the wine business because you won’t make any money, but he wanted to do it because he just enjoyed wine. Turns out, it was his big break and the company is now worth $40 million. From their, word got around about his CFO advising skills and he became a highly demanded adviser. Now, like Neil, he picks and chooses companies he wants to be a part of, but he would rather just charge his consulting rate.

For those of you like me who are on you 3rd or 4th Start-Up, I recommend not dedicating your time to advising or consulting. Put your heart, time, and money into your Start-Up (assuming you believe in it, get out if you don’t), and make it big with your own company first. Then share your experience after and I’m sure plenty of options will open up.

Definitely, it is good to help out whoever you can but especially when they are good friends. You make a lot of good points and suggestions. It seems like you have learned quite a bit over the years and have done all right for yourself. Thanks for your recommendation.

Thanks Neil for this awesome post. I loved what you have done here. The design is elegant, your stuff classy. Yet, you have got an edginess to what you’re offering here. Ill definitely come back for more

This is one of the most comprehensive advice I read on the matter. Neil, there’s no doubt you’re one of the greatest entrepreneurs on the stage, if not the greatest. I appreciate a lot what you did and do.

I have been reading Quicksprout from a very long time, Almost three years. Being an internet marketing executive, I found all the things useful and I use all of them in my daily job. For all the good things, Neil, Thanks a lot.
But what I really learned all these years is “You have learn your own lessons.”

Thanks, glad to have you following for that long. Definitely a good lesson to learn. It is true you have to learn your own lesson, but it helps if you can learn from others before you make the same ones yourself.

Nice Post Neil. Actually I am also advisor to 2 company. So my whole days goes into it. And you are advisor to 17 companies thats just wow. Thanks for sharing this. Because i will take this paperwork seriously now. And restricted stock heard first time, which will be better for me to increase my profit.
Thanks for posting this.

I believe in helping without expecting anything in return. Especially when it comes to friends. It is the best way to strengthen relationships. Also, typically when you help someone out without anything in return, the same will happen to you sooner or later.

Very interesting post. First, congratulations on all of the advisory positions. I appreciate the point you made on getting restricted stock. That seems to be a much better way to go. Do you have any tips on how you have pushed this blog to where it is now?

Thanks, appreciate it. I have just kept my hand on the keyboard and written numerous articles. I believe, as many others do, that content is king. If you have something to say and enough people are willing to listen you can achieve great things.

I am rubbish at this multi tasking, do lots of things, keeping plates spinning, etc. As soon as I do, I take my eye off the ball and everything falls away in my core business.
I made the mistake of helping (advising is too strong a word) a couple of friends with their business and not only did it take up much more time than I thought, it also drained me mentally and I felt utterly spent. Good luck to you if you can but I think I will just try and stay building my own little cottage business.

Thanks for sharing some of your experiences as a company advisor. I always thought that being an advisor has solid benefits, but this job is not for everybody, it requires a high level of responsibility and you could be blame if the company may not reach its aim. Just imagine if that’s a big company, there’s a lot of things to consider before you give an advise.

The people who most frequently ask for advice and are not willing to pay for both, advice and sometimes services are affiliate marketers. Most of them I have found to be entangled in 10 or more products. I always give them one bit of free advice and then pull back. That is find one niche and develop one product at a time. People take advice but most don’t use it. it is then when they put the blame on the advisor.

Hi Neil,
I ran across your article through StumbleUpon and enjoyed the write up.
It’s great to see the success that is possible, but for most readers, this is just a dream.
The line that caught me off guard was when you left $1 million on the table by not signing papers on time. I don’t think many of your readers have earned that much in their life, and for you, it was a matter of taking the time to sign some papers on time.
Maybe there was something really important that was happening at that time that caused this, but that section really alienated me and made me want to buy you a daily planner or something.

Hi Neil,
I ran across your article through StumbleUpon and enjoyed the write up.
Itâ€™s great to see the success that is possible, but for most readers, this is just a dream.
The line that caught me off guard was when you left $1 million on the table by not signing papers on time. I donâ€™t think many of your readers have earned that much in their life, and for you, it was a matter of taking the time to sign some papers on time.
Maybe there was something really important that was happening at that time that caused this, but that section really alienated me and made me want to buy you a daily planner or something.

I read this posting and found it very interesting and insightful. I currently serve as an independent advisor to a small healthcare consultant organization as well as for a 12-physician practice conducting clinical trials. I would like to bounce some ideas off you. what is the best way to reach you? Cheers

I wonder how many potential followers you lose when that damn popup interrupts them from reading your page.I know that whenever I hit a site that forces me to click on a pop up in order to read the site,I just move on.

Wow Awesome I am really like this post. In the middle of article some points are too awesome. Some companies are work at 84 ACT in a country. But the rule and regulation , restrictions adopt every company.

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About Neil Patel

Neil Patel is the co-founder of Crazy Egg, Hello Bar, and KISSmetrics. He helps companies like Amazon, NBC, GM, HP and Viacom grow their revenue. The Wall Street Journal calls him a top influencer on the web, Forbes says he is one of the top 10 online marketers, and Entrepreneur Magazine says he created one of the 100 most brilliant companies in the world. He was recognized as a top 100 entrepreneur under the age of 30 by President Obama and one of the top 100 entrepreneurs under the age of 35 by the United Nations. Neil has also been awarded Congressional Recognition from the United States House of Representatives. Continue reading